Data and Research September 29, 2023

Low Account Balances, Gender Savings Gap Found Among Public Sector Workers

As increasingly more public sector workers rely on defined contribution plans for their retirement savings, many are struggling to grow their balances, research from EBRI and NAGDCA shows.

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Public sector workers with defined contribution plans face many complications when it comes to retirement planning, as many approaching retirement have low account balances and women continue to lag behind their male counterparts in terms of savings, according to new data from the Public Retirement Research Lab. 

Half of public plan participants in their 60s have account balances lower than $40,000, and the median account balance for public plan participants in their 40s is approximately $18,000, as of year-end 2021, EBRI and NAGDCA found in its collaborative research. 

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This analysis reflected data for 267 plans spanning 457(b), 401(a), 401(k) and 403(b) DC plans, which includes more than 2.5 million state, county, city and subdivision government employees. The most common plan analyzed in PRRL’s database is the 457(b) plan, representing 63% of participants, which is typically a voluntary supplemental savings vehicle in conjunction with a defined benefit plan. 401(a) plans represent about 20% of the total participants in the database, 401(k) plans represent about 16%, and 403(b) plans represent about 1%.  

Loan usage in public DC plans was found to be highest among participants in their 40s, as nearly 10% in this cohort had outstanding loan balances. Offering loans is optional for plan sponsors, and many are cautious about allowing participants early access to their retirement funds. At the same time, the PRRL report explained that many employers understand that unusual circumstances arise and that loans can be a source of emergency funds. 

Only 2% of those in the 20s age cohort have taken out a loan, but for those that have, the balance equals nearly one-quarter of their DC assets across all types of accounts. For participants in their 40s, about 9.6% took out loans, according to the report. 

In terms of asset allocation, participants in their 20s had the largest allocations to target-date funds, and allocations to bond funds and money market/stable-value funds increased with age, reaching 7% and 20%, respectively, for participants in their 60s. 

Asset allocations also greatly differed between men and women, according to PRRL’s study, “A Gender Lens on Public-Sector DC Savings Behaviors.” Men took on greater equity risk in their retirement portfolios, having a higher allocation to equity funds relative to women across all age groups, according to the research. For example, men in their 40s had an average of 51% of their accounts allocated to equity funds, whereas women across all age groups had an average allocation to equity funds of 37%.  

As a whole, men contributed a higher percentage of their salaries to their retirement plan, relative to women, for all but the youngest employees. The median total contribution rate for women in their 20s was 2.2%, but the analogous rate for men was 2.1%. The difference in dollar contributions may in part be driven by differences in salaries paid to men versus women: As men tend to earn more than women, they are likely to contribute larger amounts to retirement savings. 

“While these differences in savings rates may be small, it is important to keep in mind that these contribution rates represent only a single year, meaning they are compounded over the course of the working career to determine participants’ account balances at retirement age,” the report stated. 

A recent MissionSquare research report of public sector workers younger than 35 found that 42% of workers feel that the wage compensation offered by their employer is not competitive with the labor market. In addition, about 60% of workers said they were considering changing jobs in the near future, and among those, 71% said they are looking to switch jobs because they want a higher salary. A smaller portion, 24%, said they want a better benefits package. 

Notably, one in five respondents did not know whether they are participating in a defined benefit plan or a defined contribution plan through their employer. Authors of the MissionSquare report argued that there is a need for more information and communication from employers on these issues. 

Benefits September 28, 2023

Social Security Administration Cannot Calculate 2024 COLA if Government Shuts Down

The Bureau of Labor Statistics, which would shut down completely, produces the data necessary to update the COLA.

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Absent legislation to fund the U.S. federal government, all non-essential staff compensated from discretionary funding will be furloughed. This includes the staffing needed to produce inflation data necessary to calculate the 2024 Social Security cost-of-living adjustment and other economic indicators key for investors and the Federal Reserve.

The Senate approved a measure on Tuesday by a vote of 77 to 19 to begin debate on a continuing resolution that would keep the government funded at current levels through November 17. If the Senate and the House of Representatives cannot agree on a continuing resolution, the government will shut down on Sunday, October 1, the first day of the government’s next fiscal year.

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According to the Department of Labor’s shutdown contingency plan, finalized Wednesday, the Bureau of Labor Statistics would furlough all employees.

There would therefore be nobody available to process and publish September employment and inflation data, due to be published on October 6 and October 12, respectively.

In the absence of September inflation data, the Social Security Administration would lack the data necessary to update the COLA for 2024, since the cost-of-living adjustment relies on inflation data from the third quarter, which includes September.

According to a DOL spokesperson, “In the event of a federal government shutdown, the Bureau of Labor Statistics will suspend data collection, processing and dissemination. Once funding is restored, BLS will resume normal operations and notify the public of any changes to the news release schedule on the BLS release calendar.”

The calculation of the COLA would be postponed until the BLS could resume its normal operations. A continuing resolution would permit the BLS to continue operating, but negotiations between the parties and chambers have not produced a timeline for final floor votes.

Inflation and employment data are also key metrics for the Federal Reserve’s monetary policy. Other agencies, such as the Census Bureau and the Bureau of Economic Analysis, both organs of the Department of Commerce , would also be shuttered.

The Employee Benefit Security Administration would furlough 743 of its 908 employees. The 165 who would remain include essential employees not subject to furlough and those employed using other funding.

EBSA would only be empowered to bring enforcement actions if missing a statute of limitations is at stake or if human life is at stake, such as denial of medical benefits in life-threatening situations, according to the DOL’s contingency plan. EBSA can also continue to administer the Mental Health Parity and Addiction Equity Act and the No Surprises Act, both funded separately.

The Pension Benefit Guaranty Corporation would be unaffected by a government shutdown, including all customer service and support services. The PBGC is funded primarily through insurance premiums and therefore does not rely on the annual appropriations process.

SEC Chairman Gary Gensler said on Wednesday that the Securities and Exchange Commission would be unable to process new IPOs or take new enforcement actions if a federal shutdown happens.  

 

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